FARMER MARGINAL REVENUE

1. A farmer must decide whether to add fertilizer when planting corn. He estimates that the corn revenue yield will be about \$75 per acre without fertilizer and about \$100 per acre using fertilizer. If the cost of fertilizer is \$20 per acre, what should the farmer do – Fertilize or not fertilize? Justify your answer. (5 pts)

2. Carpenter Smith owns a company that installs wood floors. He is offered \$20,000 to install a new floor. The cost of his labor and other operating expenses (excluding the wood) adds up to \$15,000. He has wood for the job in inventory. It originally cost him \$2,000. Price increases have raised the market value of the wood to \$6000, and this value is not expected to change in the near future. Should he accept the offer? Justify your answer. (5 pts)

3. You work for an airline company as a ticket operations manager at an airport. Your unit is responsible for issuing boarding passes to customers every day. Currently you employ customer service representatives (CSR) and electronic ticketing machines (ETM) to meet the demands of customers. Each CSR is paid wages and fringe benefits of \$150/day. It also costs you \$50a day to lease each machine (price includes installation, software support, and servicing). The table below contains the contributions of CSRs and ETMs in terms of the number of customers served.

CSR

ETM

Number of Workers

Number Customers Served

Number of Machines

Number of Customers Served

0

1

0

1400

0

1

0

334

2

2400

2

584

3

3200

3

684

4

3800

4

764

5

6

4100

4260

5

6

824

874

If you have a total budget of \$900 per day, how should you allocate this budget (i.e., what is the number of CSRs and ETMs you should hire) in order to maximize number of customers served? Apply marginal analysis when answering this question (15 pts).